EnQuest has bought into some Tunisian acreage. Questor says buy.

Oil and gas producer EnQuest announced another acquisition yesterday as it continued with its strategy of diversification away from the UK North Sea.

The Aberdeen-based group said it would buy a majority interest in Swedish company Par Resources’ offshore assets in Tunisia. EnQuest is acquiring a 70pc participating interest and operatorship of the Didon oil field and Zarat permit

in the Gulf of Gabes on Tunisia’s east coast for up to $226m (£150m) and an upfront cash payment of $23m.

EnQuest was formed when the North Sea assets of Norwegian Group Lundin were combined with those of Petrofac in 2010. Petrofac shareholders were given one share in EnQuest for each Petrofac share they owned.

Over the past year, the group has been acquiring interests in other regions. In late 2012, EnQuest set up in Malaysia, where it now has interests in a number of operating licences. In early 2013, it opened an office in Stavanger, in support of plans to develop interests in the Norwegian North Sea. Tunisia has now been added to the group’s assets and, more importantly, it brings with it production.

The deal announced yesterday is expected to add about 1,000 barrels of oil equivalent per day (boepd) to the company’s output. This makes up for the 1,000 boepd the group is losing this year from the closure for repairs of a North Sea pipeline operated by a third party.

Although the UK North Sea offers many opportunities for companies such as EnQuest, which is the largest independent player in the area, the infrastructure is pretty old and creaky. Shutdowns because of infrastructure issues are therefore to be expected.

The oil group has maintained its target of increasing output to about 50,000 to 60,000 boepd over the next seven years, up from 22,802 boepd in 2012.

The shares are trading on a 2013 earnings multiple of 9.4, falling to 7.2, which does not seem overstretched. There are potential risks in meeting this target, such as overspending on assets, but the company’s valuation does not look overstretched at this level. The group is not currently paying a dividend, so the shares are not suitable for income seekers.